Wacker Chemie AG

XETRA:WCH

Earnings Call Analysis

Wacker Lowers Full-Year EBITDA Outlook

Wacker experienced decreases in EBITDA and sales due to sliding prices in solar-grade poly and commodity silicones. Group sales totaled EUR 1.5 billion, and full-year sales are predicted between EUR 6.5 billion and EUR 2.7-2.8 billion. They foresee full-year EBITDA between EUR 800 and EUR 900 million, with an EBITDA margin at the lower end of around 8%. The chemical industry's low demand and high inflation pressures impacted results, with no demand recovery seen last quarter. Polymers sales dropped significantly while Biosolutions encountered weaker demand. Polysilicon was impacted by lower volumes and Chinese market prices. Despite these challenges, the company generated EUR 630 million in cash flow and maintained low net debt of approximately EUR 160 million.

Restrained Growth and Market Pressures

In a challenging economic environment characterized by low demand, rising inflation, and high energy costs, the company saw both group sales and EBITDA decline to EUR 1.5 billion and EUR 152 million, respectively. The chemical sector at large appears to be under pressure, and a recovery in demand has not materialized over the last quarter.

Segment Performances and Adjusted Expectations

The company's Silicones segment grappled with weak demand leading to a sales projection between EUR 2.7 billion and EUR 2.8 billion, with an anticipated EBITDA margin at a subdued 8%. The Polymers division fared slightly better due to successful margin defenses and net pricing strategies, expecting sales between EUR 1.6 billion and EUR 1.7 billion and a robust EBITDA margin of around 17%, despite a notable volume reduction. The Biosolutions segment also faces headwinds with sales growth projections downgraded to a low single-digit percentage.

Long-term Outlook and Investments Amidst Short-term Struggles

The company's long-term strategy, aimed at achieving sustainability and innovation, is reflected in the significant EUR 630 million cash flow from operations. Nonetheless, it is navigating through an immediate period marred by weak demand and high energy prices, with noteworthy investments in growth and capabilities during this time, resulting in a modest net debt position.

Polysilicon's Market Dynamics and Strategic Shifts

The Polysilicon segment, a pivotal division for the company, experienced a notable decline with third-quarter sales of EUR 340 million and EBITDA of EUR 46 million. The decrease is largely attributed to falling market prices in China for solar-grade polysilicon and subdued volumes resulting from maintenance activities in a U.S. facility. The company expects increased demand for its polysilicon and plans to renegotiate contracts to favorably shift sales to the ex-China price by the end of the next year. The revised forecast anticipates sales at EUR 1.6 billion and an EBITDA between EUR 300 million and EUR 350 million.

Earnings Call Transcript 2023-Q3

[Jörg Hoffmann, executive]

Welcome to the Wacker Chemie AG Conference Call and our Q3 2023 results. Dr. Christian Hartel, our CEO; Dr. Tobias Ohler, our CFO, will take you through our prepared slides momentarily. The press release, Q3 presentation and detailed financial tables are available on our web page under the caption, Investor Relations. Please note that management comments made during this call include forward-looking statements involving risks and uncertainties. We encourage you to review the safe harbor statements in today's press release, the presentation and our recent annual report regarding risk factors. All documents mentioned are available on our website. Christian?

[Christian Hartel, executive]

Hi. Welcome, everyone. Group sales reached EUR 1.5 billion with an EBITDA of EUR 152 million. Both are down sequentially and year-over-year. Declining prices in solar-grade poly and commodity silicones were the biggest contributors to this decrease. Across the board, the chemical industry reported low demand for its products, while the pressure from imports, inflation and high energy costs remained high. We do not see a recovery in demand over the last quarter. As a result, [indiscernible] chemicals today is essentially unchanged since the presentation of our second quarter results at the end of July. In Silicones, we faced weak demand for specialties without an economic recovery.

We pushed volumes into standard grades, which we see very low price today to keep utilization rates at upstream assets at economic levels. This shift led to adverse mix effects. These factors alongside continued and trailing high cost for silicon-metal stock held the segment results back noticeably. Order intake is short-term and stagnating at a low level. Although prices for standards are roughly half since last year, specialty prices have held up well. In Polymers, positive net pricing supported the strong results as we defended our margins. While orders have stabilized, we remain cautious about the European construction markets.

In Biosolutions, we are actively integrating the ADL and Wacker teams at the site in Leon. With the acquisition, we gained access to much needed fermentation capacities to serve the growing demand to sustainably produce dietary and food ingredients. As expected, costs for the upcoming mRNA facility and digitalization projects held back earnings. Polysilicon delivered a positive double-digit EBITDA figure despite China's low market price for solar-grade polysilicon. Demand for our solar polysilicon outstrips our contractually evaluable volumes this and next year, yet a substantial part of our volumes remain under legacy terms tied to the China domestic index. Our semi business remained resilient, seeing both solid prices and volumes.

We saw strong demand from our semi customers, committing to very long supply agreements. This summer, we announced that we will increase our hedging capacities for semi by 50%. When booked for order in 2025, this will allow us to improve our mix further and increase the resilience of polysilicon. Looking at our sustainability initiatives, Wacker was recently nominated as one of the finalists for the German Sustainability Award in the chemicals category.

While conserving energy and resources has always been a top priority at Wacker, we have increased our commitments and aim to achieve net zero by 2045. This nomination recognizes our efforts already made to reach this ambitious target. We see a strong business case for sustainability. Wacker's long-term success depends on providing sustainable and innovative solutions to our customers. Sustainability keeps us focused on efficiency and strengthens our relationships with key customers. I'm happy that our external stakeholders and banking partners increasingly recognize our activities.

One brokerage recently named Wacker an ESG leader in their coverage universe. Thank you for recognizing our efforts here. Looking at the next page now, our guidance. We see full year EBITDA at the lower end of the earnings range which we communicated in July. We expect EBITDA between EUR 800 million and EUR 900 million with sales of about EUR 6.5 billion. Markets have been weaker than we expected. Our customers remain cautious. In Polymers, we face uncertainty from the construction markets. In Silicones, order intake is not showing improvements. We continue to have limited visibility in both segments with our customers shifting to just-in-time ordering. This makes it difficult for us regarding both production planning and forecasting.

Even though we continue to face considerable headwinds, I'm confident we will successfully tackle the challenges ahead. We have an excellent team at Wacker. But more, we are well placed strategically. Our strategy 2030 provides us with goals, faster growth, high profitability and better resilience in light of constant change. While adapting our modular investment strategy to the changing environment, we remain committed to the path. We continue to grow in the regions close to our customers.

We recently announced a new EUR 150 million specialty silicone investment in China, which will be ready for order in the second half of 2025. Zhangjiagang is one of the Wacker's largest fully integrated production sites. From here, we supply the rapidly growing Chinese market with a wide area of downstream silicone products such as sealants, elastomers, emulsions and fluids. And two weeks ago, we actually celebrated 30 years of Wacker being in China. We continue to drive our business sustainable and development forward. Investment in our future growth is vital to realizing the opportunities ahead of us. But major challenges persist.

In addition to weak demand, the combination of unfavorable German policy choices and the fallout from geopolitical events such as the war in Ukraine, keep energy costs up. We believe the conflict in the Middle East will result in higher uncertainty and may delay in economic recovery. Energy intensive industries in Germany remain burdened by high power costs, and supply needs to be more secure. We see that renewables will answer this problem, but we need short-term measures to support the industry through this transitional period. In Berlin and Brussels, much talk has been about an industry power price and the reshoring of critical raw materials and industries. Unfortunately, until now, it remains only talk while other regions act. Now to Tobias for details on Q3 results.

[Tobias Ohler, executive]

Thank you, Christian. Welcome, everybody. For the third quarter, we reported sales of EUR 1.5 billion, down nearly 30% year-over-year. We continue to see weak end market conditions, low demand for specialties, wait on utilization rates, particularly in silicones. While Polymers also saw weak demand, we continued to benefit from net pricing. Polysilicon saw much lower prices for solar-grade materials due to overcapacities in China.

High energy prices continued to burden us, particularly in Germany. Globally, this year's energy bill will still be twice as high as before the hike last year. All these effects work their way through the P&L from top to bottom. The gross profit margin was 13%, down from almost 23% last year. EBITDA contracted to EUR 152 million. Earnings per share came in at EUR 0.56. During these challenging market conditions, we have increased our focus on controlling costs and are implementing additional short-term measures on top of our existing programs. This covers personnel costs, technical spending, direct materials and all discretionary spend. We must consider all options to run as efficiently as possible.

As Chris mentioned, we now see our group full year sales and EBITDA in the bottom half of the communicated ranges. I will walk you through our expectations for each segment after I address the balance sheet on the next page. Our balance sheet shows strong financials with about EUR 1.4 billion in liquidity and about EUR 4.7 billion in shareholder equity. Our net working capital position is about EUR 100 million lower than at the end of last year. We have achieved meaningful reductions in inventory as we continue to reduce our stock levels. We actively work with key suppliers to match our needs with current market conditions.

As our sales grew rapidly, we invested significantly in working capital over the past 2 years, as demand slows and prices [indiscernible], we expect this to unwind supporting cash flow. Our financial borrowings have been constant at about EUR 1.5 billion in the last couple of years, with similar levels of liquidity. This has resulted in a net interest charge of EUR 15 million to EUR 20 million annually. This year, we will end with a positive net interest figure of around EUR 5 million. Essentially, this comes from increased deposit rates while interest rates on borrowings were fixed in time and remains the same.

Our financing portfolio is well diversified across lenders with maturities between 2024 and 2030. We are solidly financed with EUR 1.4 billion in liquidity and fully undrawn syndicated loans of EUR 600 million. Moving on to Silicones. Sales decreased to about EUR 670 million, down nearly 25% year-over-year. The decline was mainly due to much lower specialty volumes and due to prices in standards. Sequentially, sales were somewhat lower. We see continued weak demand in all regions and some negative pricing effects in some specialty products. Silicones EBITDA was unchanged compared to the preceding quarter at about EUR 50 million.

No output and high silicon-metal costs helped back earnings as with the preceding 3 quarters. With low demand in specialties, our product mix adversely moved towards a higher share of standards. We have updated our Silicones outlook. From today's perspective, we do not see a demand recovery in the fourth quarter of this year, and rather assume year-end management of some customers. With a low volume turnover, headwinds from trailing higher raw material costs continue longer than anticipated.

While we have reduced our silicon-metal stock position significantly, work still needs to be done here. We now expect full year sales between EUR 2.7 billion and EUR 2.8 billion with an EBITDA margin of about 8% versus our previous margin expectation of around 10%. Polymers reported sales at just below EUR 400 million, down around 20% year-over-year. Sequentially, sales were down about 5% at similar volumes. The much lower revenues were driven by the development of selling prices, which we adjusted to reflect our raw material costs. Despite demand remaining particularly weak in Europe, the EBITDA was much higher year-over-year and at the same level as the preceding quarter.

As a reminder, the previous year's quarter was held back by a planned turnaround. The main factors driving the consistently strong results throughout 2023, have been net pricing and our efforts to defend margins. For the full year, we have left our Polymers outlook unchanged. We expect sales between EUR 1.6 billion and EUR 1.7 billion with an EBITDA margin of around 17%. Despite considerably lower volumes, our absolute full year EBITDA will be comparable to last year's record result. Although polymers demand has stabilized recently, we remain cautious about European construction markets.

In Biosolutions, sales came in at EUR 77 million. Lower prices and volumes for some established chemical products offset sales growth in biopharma. As in our Chemicals segment, we see weak demand and inventory management of our customers for these products. EBITDA in the third quarter was minus EUR 3 million, earnings continued to be burdened by upfront costs related to the German pandemic Preparedness Plan. For the full year, we have updated our Biosolutions sales outlook. Demand has been weaker than expected. We now forecast a low single-digit percentage sales growth, down from a high single digit previously.

Our EBITDA forecast is unchanged. We expect the result below last year. Please remember that we carry substantial costs today from our new mRNA Center in Halle, and we'll see revenues in mid-2024. While we currently see a challenging funding environment for many smaller biotechnology companies, we continue to see a strong growth outlook for advanced medicines. Thousands of new molecules are under new development and will need a CDMO partner such as Wacker to bring these therapies to market.

In Polysilicon, we reported third quarter sales of about EUR 340 million. EBITDA came in at EUR 46 million. Compared to the preceding quarter, both sales and earnings contracted meaningfully. This was primarily due to the steep fall in the market prices for solar-grade polysilicon in China at the end of the second quarter of this year. Another factor was lower volumes in the third quarter as maintenance in our U.S. facility resulted in lower output. The solar market is now differentiating product by origin. We expect this trend to continue, and we see more demand for our polysilicon than we currently contractually have available.

We still have significant contractual exposure to the Chinese domestic market price today. We are actively addressing this and work to change nearly all our solar volumes to the ex China price by the end of next year. We have updated our Polysilicon outlook. We now see sales at about EUR 1.6 billion and an EBITDA between EUR 300 million and EUR 350 million. The lower range is due to the lower volumes as we perform maintenance in the U.S. facility and due to trailing price effects from the end of Q3 market price indices.

Looking at our net financial debt, Page 10. For the first 9 months of this year, we generated approximately EUR 630 million in cash flow from operations. Our cash conversion improved markedly compared to last year, where inflationary pressures resulted in a significant investment in working capital. We see this now unwinding with raw material prices declining. Cash flow from investing activities came in at EUR 550 million, primarily representing investments and M&A as we expand our capabilities and capacities in line with our 2030 strategy.

Including the dividend payment of about EUR 600 million in May, we ended the first 9 months with a low net debt of about EUR 160 million. So yes, our investments are high at a time of weak demand. On the one hand, these investments represent decisions taken before the slowdown, but they also include recent decisions. I see this as a clear sign of confidence in our markets. We want to be prepared when market conditions improve and markets pick up. We are completing maintenance today and making the needed investments to support our customers' growing demand for innovative and sustainable solutions. These new capacities will allow us to service our customers better once demand recovers. As Chris said, our development work with customers continues to expand further and improve our specialties portfolio.

So let me wrap it up before we start with the Q&A. We continue to see challenging markets. The anticipated recovery is delayed, and our visibility still remains low. This makes both internal planning and external communications demanding. I expect many of you will be looking for comments on how 2024 may develop. We will stick to our usual approach to guidance. We will communicate our 2024 full guidance when we publish our full year 2023 results in March next year.

[Jörg Hoffmann, executive]

Operator, we are ready now to begin the Q&A.

[Operator]

[Operator Instructions] And the first question comes from the line of Thomas Swoboda from Societe Generale.

[Thomas Swoboda, analyst]

Good afternoon, everyone. Two questions, please. Firstly, on 2024, I perfectly respect that you don't want to give guidance. So it would be very helpful if you could discuss the building blocks you might be seeing already for next year? My second question is on your legacy quality silicon contracts in China, you have repeated today that you are looking into those contracts. My question is regarding the progress. Have you made any progress on revising those contracts during the quarter? Thank you.

[Tobias Ohler, executive]

Thomas, to be honest here, yes, you are digging into 2024. But as I said, it's too early for guidance, but what you can read from our outlook for the year-end is obviously, we assume a slow start into next year. And if you translate that slow start into the year, that obviously also means a weaker first half is likely. The second item would be the discussion on our input costs, mainly on raws. Raws should come in lower as we had seen a decline throughout the year, obviously, but watch out. And you know that I'm also on the cautious side.

The same goes for our own selling prices. I mean these also have been on a decline throughout the year, so we have rather low exit rates. For sure, as I mentioned also in the speech, we will be very stringent on costs. So cost contingencies will be very important. So we will top up our efforts here. But then the final questions, and we are in the midst of the discussion here still is how to assume the volume pick up. We haven't seen it. So it's a highly debatable, yes, figure. So the question is really what magnitude can we expect? I mean we have seen some inventory correction in this year, which should be over. And finally, end market should pick up somewhat. But there's a huge discussion in the organization about how much. So as I said before, we are not there yet, but these are about the building blocks, full guidance will be given in March, but possibly 2024 mirrors a bit 2023, just with a weaker first half and a stronger second half. But I think that's what I would be ready to share today.

[Christian Hartel, executive]

Okay, Thomas, and on your second question on the -- you call it legacy contracts or contracts that are tied to the inside China pricing index. So what we reported is that within this year and also end of last year, we achieved, yes, I think, quite a remarkable change in the contract structure. But we also said there is still a substantial part of contracts under the Chinese index. So we could keep on discussing with our customers to convert these contracts to the outside China index, which we believe is the value of our material. And you can imagine with a lot of contracts, I mean, there are different durations.

And obviously, it's easier to change terms if a contract ends and you start a new contract. But nevertheless, we also continue discussing -- heavily discussing and negotiating with customers that have existing and running contracts to change these to these new terms. And yes, as I said, we achieved a lot this year. And latest, by the end of next year, we will probably shift all the volumes to the new pricing model.

[Operator]

And the next question comes from Rikin Patel from BNP Paribas.

[Rikin Patel, analyst]

I have 2 on the guidance. So first in Polysilicon, your new guide implies a sequential step-down in Q4. I suppose given you had maintenance in Q3, I'd expect volumes to be up sequentially? And given you also price at a lag, I'm just curious why you're seeing a step-down in Q4. And then in Silicones, I know you've covered the demand weakness and continued, I guess, negative sentiment in that market. But again, the sequential step-down does some quite significant, even if I adjust for seasonality. So I'm curious just what the moving parts are there? And if you could give any sort of indication on what operating rates are across your plants and silicones, that would also be helpful.

[Christian Hartel, executive]

Okay, Rikin, this is Chris. I'll start with your first question on the Polysilicon guidance for Q4. So actually also what Tobias has mentioned in his speech, at the end of Q3, we also saw declining prices for Polysilicon, which is now dragging down into Q4. So the main effect is really lower prices for solar poly in Q4. And yes, we also remain a little bit cautious on the December numbers in China. On the volume side, volumes in Q4, we believe, are similar to the numbers in Q3, and then the Q3 numbers were affected by some maintenance, which is also dragging into Q4.

[Tobias Ohler, executive]

And on Silicones, Rikin, Tobias speaking here, for Q4, we originally had expected some more stable demand. We continue to see low demand. And that specifically affects also the portfolio of our specialty customers. They act short-term, they act cautiously. And for that reason why we see October coming in similar to September, we are cautious on year-end, and we see some inventory management effect of some customers. So that means running our upstream at a high level, overall, the mix, the product mix would be affected negatively why the strategy is on specialties, we just [indiscernible] with standard products. This goes then in parallel to still higher costs for raw materials.

We had expected that with higher turnover, we would get through those, yes, high-priced inventories sooner. But with the pushout of volumes at our suppliers, we sometimes also have to bear trailing prices when we take the volume at a later point in the year. And yes, finally, maybe another element that will sequentially be a burden on Q4 is center prices will still be a drag. They have stabilized recently. We noticed that. There has been a small uptick in China. But as exit rates in Q3 are lower, we also expect the average in Q4 to be lower than the average in Q3. So all put together, this makes us very cautious on Q4 with respect to Silicones.

[Operator]

And the next question comes from Charlie Webb from Morgan Stanley.

[Charles Webb, analyst]

Good afternoon, everyone. Maybe just one following up on Thomas' question on the Polysilicon contracts and shifting those away from the China reference price. Could you give us a sense of -- versus '23, what proportion of volumes have you had successful renegotiation of terms as we think of 2024 and what maybe come more towards the end of '24 in terms of when the timing of these contracts to come up? Just trying to understand the phasing of that shift in terms of what that might mean? And then second, just on that same point. Just what do you think is a sustainable premium for non-Chinese poly? What is that offshore price, that kind of sustainable premium you think as you're kind of going through this negotiation? So two questions there. And then if I could just sneak one other one in.

Just earlier on in the call, you mentioned that Europe hasn't really acted to protect industry, German industry, the solar industry. What is the latest? Obviously, we do continue to hear more talks around the Resilience Bonus and such forth. But just any sense on where you think things are for Europe as they look at the solar value chain would be great?

[Christian Hartel, executive]

Okay, Charlie. Yes, let me start with your first question on the poly contract and the shift. I can just give you some rough numbers on that. I mean keep in mind, a year ago, so at the end of 2022, almost all these contracts were based on the inside China Index because this new index was not just -- I mean it was just beginning to start. So therefore, almost all of our contracts were based on this Chinese terms. Now during this year, as I mentioned, a lot of efforts were going on. We could switch substantial amount of customers to the new indexing. Although we don't disclose an exact number, I think with an estimate of around 50-50, I think it's a good -- quite a good estimate to go forward. And as I said before to Thomas, during next year, our aim is really to go into a range of 0 to 100 to shift all these contracts to the non-China index.

So that will be the first part of your question. Well, the second part of your question, what's kind of the pricing level? I mean this is always quite a challenge for Polysilicon, hard to judge. What we can say is, and Tobias mentioned this in his part, there is a very high demand for this material, which is made outside of China, and therefore [indiscernible] substantial premium possible.

Yes. Then on your question on the industry power price and reshoring update. I could talk for hours now, but I won't. We have been in very intense discussions also in recent weeks. Maybe you've seen there was a meeting with the German Industry Association, Chemical Industry Association together with the German Chancellor [indiscernible] Heads of the regions, that was end of September. We made a lot of pressure. There were high expectations. The outcome was, at that stage not satisfactory, and therefore, discussions are going on. We keep pushing for this industrial power price in Europe. In Germany, there's a broad coalition now also with trade unions from the chemical side, from the metal side, also the industry associations of these industries altogether.

So broad coalition for introducing this. And recently, this week, the German Ministry of the Economy and Vice Chancellor, Habeck, he published a paper industry strategy for Germany, it's clearly stated that an industrial power price or a bridging [indiscernible] would be an essential tool for keeping Germany as an attractive industry site, very good paper in my view. So everything is prepared. It now comes up to the government to make a final call. And it's always a tough time to predicting political decisions. What we do here is that in the middle of November, there will be a decision on the final budget for '24. Is that final? Don't ask me. But there's at least another milestone, cornerstone where we hope to get a clear decision.

Today, in the news, you could read just a few hours ago, that there was a new -- what you call it, estimates. There's a new estimate on German tax payers. And that says in the next 5 years, there will be EUR 25 billion more on taxes paid versus the last assumptions. So actually, that would equal the industrial power price, EUR 25 billion. And I hope Mr. Lindner is moving a bit faster than he has been before.

[Charles Webb, analyst]

That's really helpful. Just one quick follow-up on your first comment around pricing and it being a very tight market for you guys in terms of people wanting your product more than you have available. I mean do you sense that across the board when you look at the math and you think about the U.S. market and other markets where your product has that premium, do you sense that there's a chance that pricing move to kind of reinvestment economics? Do you think it will behave that way?

[Christian Hartel, executive]

Well, I think at the moment, I would say it's very much driven by what you say is the U.S. regime on imports for the solar modules, proving that it's [indiscernible] certainly is a driver for the high demand of this material that could definitely go in the range of reinvestment. But I think at the moment, not really the question. The question is more supply and demand that drives the price in my view.

[Operator]

And the next question comes from Jaideep Pandya from On Field Investment Research.

[Jaideep Pandya, analyst]

First question is on the tax credits that you potentially are eligible for in the U.S. Could you give us some sense of what sort of volume should we be calculating the $3 tax credit? And would it be applicable also for semi? And given you haven't got anything for 2023, could 2024 have two payments instead of one payment? Second question is really around your raw material and energy bill. So can you just give us some color on where you are with regard to your raw material inventory drawdown and sort of what deflation you would have got this year if you hadn't been sitting on this inventory?

And on the energy side, what sort of hedging have you done on electricity and on gas for 2024? And then the last question really is around the Polysilicon sort of debate. I mean if we think about the international market, do you see that the market is going to remain tight for the next 2 years or so because there is quite a lot of non-Zhangjiagang capacity coming in China, which could potentially use non-Zhangjiagang silicon-metal and actually be eligible for the U.S. or the European market. So do you think that the $20 REC [indiscernible] that they have signed [indiscernible]? Or do you think that yes, there is a 1-year window or 2-year window maybe and then international markets will also be flooded with sort of non-Zhangjiagang polysilicon from China?

[Tobias Ohler, executive]

Jaideep, Tobias here, I would try to your first three questions. First, on tax credit. Yes, we expect those to have an impact next year. But the -- as we equate, they will depend on the production volume in the U.S. And unfortunately, as we described, we had a shutdown in the first quarter. And then as we reported in the third quarter, we also had a planned maintenance, and that turned also into a larger maintenance. So we have not had full production. And we run mostly on semiconductor, which is a more demanding product specification so that the overall volume is not [indiscernible] capacity of 20 kT as we had designed the plant for solar capacity.

So for that, that means that the numerator for calculating the credit is lower than 20 kT, but we expect to file with the tax return -- tax filing in the second quarter and claim credit. I'm then normally conservative how to account them for '24. But if it gets approved, I think we would also see a good accounting approach to, yes, take it also for '24 as a credit before then filing again in '25, the tax.

On raw materials, your second question, we had seen a significant decline in silicon prices. I mean this is the biggest raw material for silicones and polysilicon. And we have seen a significant decline for all polymers raw materials. I'll start with the polymers. We have a net positive pricing, as you know, and that supports our profitability significantly in 2023. For silicones, our pricing on the sales side was driven by supply and demand, and we talked very much also about that weak environment for specialty volumes. So we were burdened by the high silicon-metal prices. If you remember, silicon-metal prices shot up from '21 to '22 by a factor of 2. I mean for short-term also by a factor of 3 and 4.

And now throughout the year, silicon prices have halved, roughly halved, but throughout the year, and that has not hit yet our P&L. We fully hit the P&L as we still work through the inventory. And we do everything to clean up 2023 to get a much better start in '24 but that's a lot of work. I must say because the volume turnover is lower with a lower demand environment. To your third question, hedging of power. We have different hedge levels. We are significantly hedged. That means more than 3/4 for gas at still very attractive prices for '24, and we are hedged slightly above 50% for power, for electricity for next year.

So then, I mean, it very much depends how our spot price is developing because if you would believe that spot prices would not be lower than today's forward prices, we should hedge. So that's a bit unknown. Today, there is a risk premium for buying forward contracts. The question is, is that risk premium then justified if you come to the actuals or does it go away as it has gone away throughout this year if you remember what hedges could you have bought last year for '23 and how spot prices have developed on the electricity side. So that's for power.

[Christian Hartel, executive]

Okay. And your question on the Zhangjiagang Poly, well, first of all, I think we have to state that already today, I mean, there's not only Zhangjiagang poly available in China, there are already capacities outside of their province, which would use the material and obviously have no influence on the pricing. So at the end of the day, I mean, it's hard to say because [indiscernible] in the U.S., they are looking at the whole value chain and they want to have that certified. And the big question mark is what kind of certificates they would accept.

So it is not only the Polysilicon where they would need a certificate where it's produced but they would also need a certificate of the raw materials, which would be essentially [indiscernible] and also the coal where that is produced. And the big question mark is if a Chinese certificate would be sufficient for [indiscernible] to be accepted. At the moment, we don't see that. And therefore, I think the question is not really about is it these new capacities coming up in non-Zhangjiagang. I think it's more a general view on Chinese capacities and the certificates made by the Chinese players.

[Jaideep Pandya, analyst]

If I can just ask one follow-up on this topic. When you're talking about the shift of contracts, can you give us some like qualitative color is -- are these new customers that you're going away from the China for China to the industrial price, be it in the U.S? Or are these actually Chinese customers who are willing to accept international price because they want to service more international markets? Or is it a bit of both?

[Christian Hartel, executive]

Well, it's kind of -- it's a little bit of both. It's a mixture. And I mean, as you know, the Chinese play an important role in the whole solar value chain. And therefore, of course, they play a role also in these markets, but there are also a non-Chinese player that show interest. So it's a mix of both.

[Operator]

And the next question comes from Chetan Udeshi from JPMorgan.

[Chetan Udeshi, analyst]

I just wanted to follow up on your comments on Polysilicon because I'm very confused. If I heard you correctly, Chris, you said already 50% of your Polysilicon contracts are indexed now this year to ex China pricing? I mean if that's the case, why is your Polysilicon profitability so low in Q4? It's like EUR 25 million, which should be your profitability in semiconductor business. I guess your solar business is not even making money in Q4. So I'm very, very surprised if that sort of contract shifting has been achieved that the profitability of Polysilicon is not better, at least on guidance in Q4? That's the first question.

Second question I had was I just wanted to understand, you sometimes give us this book-to-bill numbers for some of your businesses. And I think it's just useful for us to know how that is tracking across your two main chemical divisions today, which are silicones and polymers as you think about it into Q4. I mean I don't want to know the seasonality, but I'm just looking at more the underlying. Is there any spark in that book-to-bill? Is it going above 1 or anything that would be useful. And the last question on your Biosolutions business. Can you remind us how much should we be modeling in terms of earnings or contribution from your agreement with the German government next year in terms of contribution to Biosolutions?

[Christian Hartel, executive]

Okay. Chetan, I'll start with the first question on the Polysilicon. Yes, what we said is not roughly, but half of the material is still indexed to the Chinese index and the other 50% is not. Yet we've seen also, as we mentioned, at the end of Q3, a lowering of prices for both these indexes and that's also what we put into our guidance for Q4. So lower prices. But also keep in mind, compared to the previous quarters, especially Q2, we see lower numbers, lower volumes in Q4, which is comparable to the Q3 numbers. And these two effects, lower pricing for solar grade material, but also volumes at the same level lead to this decline in EBITDA.

And I think there's -- yes, I mentioned we are maybe a little bit cautious on the December pricing. But that's the reason why we see these numbers a little lower, yes.

[Tobias Ohler, executive]

On the second and third question, book-to-bill. I mean yes, we do look at that, but we have seen there some false starts throughout the year. So we are very cautious. That's why we look at a different or a diverse set of metrics, also volume because -- and that's by product because we also need to watch out for are there any mix effects that would have an impact. So from what we are seeing, it's flat. There's no uptick in demand. And that's why we -- in addition to that, we bake in some seasonality towards the year-end. But that, especially in the Silicones business for the reason that our specialty-focused portfolio customers will be cautious towards year-end if they do not have a clear outlook into '24.

And for Polymers, it's the normal seasonality from the construction activities that we see. So to your third question on Biosolutions and how much we expect from the mRNA contract with the German government. We expect that to start mid-next year. So we are good with the investment in the second quarter. So we won't have the full year effect, but it is a significant contract. I think we do not disclose the overall revenue, but account yes, account for it starting mid of next year.

[Chetan Udeshi, analyst]

Can I follow up just last clarification. Your Polysilicon business for the solar market, is that profitable right now in Q4?

[Tobias Ohler, executive]

Chetan, we don't report below the segment level.

[Chetan Udeshi, analyst]

I'm just curious because I can estimate all of your profitability today in Q4 just from your semi business. So I'm just curious, is that the right assumption that your solar business hardly makes money right now?

[Tobias Ohler, executive]

We stay to our -- we stick to our policy, sorry, Chetan. So no more information below the segment level.

[Operator]

And the next question comes from the line of Andreas Heine from Steeple.

[Andreas Heine, analyst]

Two from my side as well. I try again on 2024 on Biosolutions. So the last 2 years, you had integration costs, digitization costs and preparation and pre-start costs. Is 2024 normal year? Or is that where we have to -- where you have to absorb, again, additional factors, additional negative factors? And the second is actually on the net working capital, so it was down 6%, as you mentioned, sales are significantly more down. So do you have to do also on your end, substantial cleaning on your inventories? Or how do you see this progressing?

[Christian Hartel, executive]

Okay. Andreas, I will start with the first question, Biosolutions and would 2024 be what you call a normal year? Well, as Tobias just mentioned, I mean, we are planning to ramp up for the Pandemic Preparedness Plan for the mRNA side in Halle in the end of Q2 time frame. So until then, I wouldn't call it normal because then it would be more normal once this facility is running. But also keep in mind, we are also in the middle of a transformation for the business. We are integrating now the site in Leon, ADL. Holiday is coming and so I would expect that during this year and to the end of the year of 2024, we would see much better results also from all these efforts we put into the business.

We believe in these opportunities, we believe that the great opportunities that we also acquired. I think it's very clear also to say that the current squeeze in the biotech funding scene is giving us a headwind. So therefore, a pipeline of projects might be delayed in one or the other case, but also what I would like to mention, I mean, if you look at the Q3 numbers, it looks like there's kind of substantial growth. Keep in mind that our Biosolutions business today has also a significant part of legacy business, which is down to a comparable level with a lot of chemical business at Wacker, but also in the rest of the industry and the biopharma business is actually progressing quite well. And this is also part of these numbers. So we remain committed. We remain optimistic about our plans, but we are still in the middle of that transformation, and I'm optimistic that by the end of next year, middle to end of next year, we'll see a much better performance.

[Tobias Ohler, executive]

Andreas, on your net working capital question for '24. We are not there yet. So it's a pretty detailed item for the guidance. But let me think through the moving parts. I mean we've made a significant progress, but just take the example of silicon-metal. We reduced it by 1/3 from end of last year to today. And we are going to cutting it by 50% towards the year-end. And that definitely has a significant effect if you then also include the price effect on silicon-metal. I believe going forward into '24, we should have still some opportunity also in the long supply chains especially of silicones to still reduce volumes.

And we would also see some price-down effects from raw material and energy costs. But on the other hand, if the demand picks up, you build again, inventory and you need to make sure that your delivery times are appropriate, and that will be then a countering effect. And in addition, when sales pick up, receivables also will go up. So there are quite some moving parts, especially in a dynamic environment. So please, yes, allow me to be cautious not to give you a number for '24 today. So we are still in the working. It will be -- I mean, there will be definitely an effort. That's what I can say, an effort to release cash from net working capital, and there will be also projects working on inventory targets, but there will be many moving parts if the demand finally picks up again.

[Andreas Heine, analyst]

But is it fair to assume that especially in these very complex value chain in silicones, so you have thousands of different grades, that the underutilization will continue quite a bit because you run down your inventories, you have also unfinished goods, is that too negative?

[Tobias Ohler, executive]

It's a super complex value chain. So yes, that would lead to some still running in low utilization. But that on the other hand, that's why I was referring to when it picks up, you need to make sure that you have your intermediates ready for the downstream plants to produce and that makes it a bit tricky. But it is a fair observation that our inventories volume-wise, are still higher than before the pandemic. They were super low during the pandemic. And then they -- I mean, that went up through those very strong years that we experienced in '21 and '22.

[Andreas Heine, analyst]

And if I may squeeze in a third one on silicones. You mentioned that you produced the standard products to fill your capacity to have a decent utilization rate. At this currently very low prices, do you still have a positive gross margin on standard products?

[Tobias Ohler, executive]

Yes, we definitely only do it when we have a positive margin. If not, we shouldn't.

[Operator]

And we do have a follow-up question from Jaideep Pandya from On Field Investment Research.

[Jaideep Pandya, analyst]

Sorry to jump on to Andreas' line of questions on silicones. I just want to understand your -- as per your guidance, you're going to lose about 700 million of sales this year and about 620 million and 630 million of EBITDA. So it's almost like a one-for-one sales to EBITDA ratio.

You've alluded to quite a lot of these factors. But just want to understand, even if demand remains at current levels, if you don't see a major pickup, should we think that if standard prices have stabilized and specialty prices don't fall dramatically because these are specialties, the raw material benefit alone should get you to sort of back to the at least 350 million level, i.e., towards the 10% to 12% margin rate, not the sort of 20% or 18% to 20%, which you used to do, but at least somewhere in between the current extremely low profitability and sort of the mid-cycle level profitability? Is the raw material sort of savings enough for that? Or you would need improved utilization as well for that to happen?

[Tobias Ohler, executive]

As I said to Thomas, at the very beginning of our Q&A, we are not at guidance yet, but we talk through the moving parts and you mentioned two of them, the input costs and the sales prices. And as I said before, I would be cautious. I mean yes, we have lower exit rates in the input costs, which give us a relief. But on the other hand, we also have lower exit prices for our sales prices. And that makes it tricky. So I don't want to comment on your calculation for that exact reason.

[Jaideep Pandya, analyst]

And if I just ask a second follow-up on polysilicon, how is the inventory level in the hubs? I mean what we are hearing is China will have a very strong Q4 installation-wise, and inventory levels are low. How do you see inventory levels and therefore, near-term pricing, when I say near-term, meaning Q4 or Q1, what are the chances that we remain sort of around these levels? Because obviously, you guys are penciling in a lower price. But some of your Chinese competitors are actually saying the other way around. So what do you see with regard to inventory levels in China?

[Christian Hartel, executive]

Well, I mean, what we do see, Jaideep, is, as you mentioned, there is a high demand on the installation side. I'm cautious if there is a big pull on the polysilicon side. I think there's some inventory also on the modules. So that's the reason why we said we are a little cautious on the pricing side on December, but it all depends on how much material are actually used. And I would like to add maybe one comment also on the silicones side. I am not giving you a more detailed information as Tobias, of course. But I think the main question is really the demand side when that is picking up.

And as we said several times now, we don't see it now in our books picking up. On the other hand, I mean, if you talk to our teams on the development sides, working together with the customers, I mean all these projects are going on and new projects are coming into that pipeline. So the intrinsic interest in that material in these specialties is there. But again, as we don't see it in our books today, we don't pencil it into our calculations.

[Operator]

There are no further questions at this time, and I hand back to Joerg Hoffmann for closing comments.

[Jörg Hoffmann, executive]

Thank you, operator. Thank you all for joining us today and for your interest in Wacker Chemie. You see our upcoming events for next year at the back of the slide deck. As every year, you should expect us to publish preliminary results towards the end of January or early February next year. Please note that our next conference call on results is scheduled for March 12, discussing full year 2023 results. We also plan on holding a Capital Market Day in June at our main site in Germany, Burghausen. In the meantime, don't hesitate to contact the IR department if you have further questions.